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Saturday August 18, 2007
POLITICAL ESSAYS
The Exchange
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Under the August 10th headline "A New Kind of Bank Run Tests
Old Safeguards," the NY Times reports:
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"...now the [bank] runs are back — and this time the targets
are not banks but the securities that have replaced them as
the prime generators of credit in the new financial system."
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New financial system?
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"...a new financial architecture emerged in the last decade
--one that relied more on securities and less on banks as in-
termediaries."
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Emerged in the last decade?
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*Took over* in the last decade. (The beginings go way back.)
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The idea behind it all: avoid, duh, over-regulation.
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It's "based upon the premise that hard-and-fast rules had
no place in the environment of war, which was the realm of
human emotion, friction, chance and uncertainty." (Wikiped-
ia article on kinds of regulation in war.)
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Returning to the newsstory--
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"At the heart of the new system was a decision [!] to have
loans financed directly by investors, rather than indirectly
by bank depositors.
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Investors, ranging from hedge funds to wealthy individuals,
had confidence in the arrangement because most of the securi-
ties were blessed as very safe by the bond rating agencies
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The ultimate result of such blessings?
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"...a freezing up of markets for many securities that, it
turns out, were critical to the free flowing of credit [in
general]."
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Another aspect of the new financial system?
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"Loans could be arranged by nonbanks, not subject to bank
regulators,
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and the regulators were hesitant to impose rules that would
not apply to all lenders."
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Hesitant? It i$$ to laugh.
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This Times article and a follow-up article --both by Floyd
Norris-- are, so far as I know, the only informative news-
stories out there about the unregulated meltdown.
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For more about the "new" unregulated system, start at wiki-
pedia's "Structured finance" page. There's plenty of fol-
low-on pages.
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Oh, yes. Under the August 14th headline "Another Market
For Unregistered Trades," AP reports:
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"A group of Wall Street titans is creating a rival venue...
to trade the stocks of companies that don't want the scru-
tiny and regulatory burdens of going public."
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NYT 1:
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http://www.nytimes.com/2007/08/10/busin ... nted=print`
Wiki 1:
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http://en.wikipedia.org/wiki/Directive_control`
NYT 2:
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http://www.nytimes.com/2007/08/05/weeki ... nted=print`
Wiki 2:
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http://en.wikipedia.org/wiki/Structured_finance`
AP:
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http://www.washingtonpost.com/wp-dyn/co ... 54_pf.html`
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